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Friday, April 1, 2005

Whither Sikorsky?

James T. McKenna

Comanche's gone and VXX is lost, but folks in Connecticut have little time to mope. They're too busy building helicopters.

January 28 was black Friday in Stratford, Conn. With thousands of employees, vendors, partners, community and political supporters and Wall Street watching, Sikorsky Aircraft Corp.'s showcase S-92 lost the race for the contract to fly the U.S. president through the first half of this century.

There was a great deal riding on the bet that the offspring of Igor Sikorsky would win that race--a $6.1 billion contract, the prospect of a worldwide sales boon from executives who wanted the "president's helicopter" carrying them, too, and the prestige of continuing a 40-year-plus run as the contractor that vertically lifts the chief executive of the United States of America. (Come 2009, that job will be done at least in part by the US101 built by a team of AgustaWestland, Bell Helicopter Textron and Lockheed Martin.)

What was not riding on the VXX competition, according to executives of the company, was the future of Sikorsky.

Loss of that contract "was disappointing and a little bit shocking even. It is what it is. They've made their decision," said Jeff Pino, Sikorsky's senior vice president of marketing and commercial programs.

In its wake, "there are a lot of questions about what is Sikorsky's future." The answer is that its future is a very busy one. "We've got so much to do," he said. "We did not lay off anybody after VXX, that's how much work we've got to do."

Sikorsky's To Do list includes:

  • Production of 1,200 or more new UH-60Ms for the U.S. Army, having convinced that service it could provide more reliable and predictable new Black Hawks for about the same price the Army had planned to pay Sikorsky to remanufacture UH-60As and Ls.
  • Development of the next-generation heavy-lift rotorcraft for the U.S. Marine Corps and possibly other customers around the world. The Marines want a new aircraft based on Sikorsky's CH-53E but more powerful and more capable. Sikorsky stands a good chance of winning a sole-source contract to design and build what is known as the CH-53X.
  • Building more than 500 improved Naval Hawks for the U.S. Navy, under a program that also has been upgraded from a remanufacture to a new-build endeavor.
  • Relocating, reorganizing and spooling up the production line for the S-92 to satisfy pent-up demand for the aircraft and work off an order backlog, and
  • Improving its popular S-76 through the S-76++ upgrade and the new S-76D program and paring fat from that aircraft's production processes.

Those are among numerous elements of Sikorsky's plan to double by 2008 the revenue it recorded in 2003. We will examine a key part of that plan--the company's efforts to adopt "lean manufacturing" and overhaul its production processes--in a subsequent report. This month we focus on the health of Sikorsky's various product lines and its plans for keeping them healthy.

As part of its drive to make its operating units more accountable for their performance, Sikorsky parent United Technologies Corp. (UTC) this year began reporting financial results for those units separately. Previously, Sikorsky had been lumped together with Hamilton Standard as the Flight Systems group in UTC's financial reports. As part of the change this year, UTC broke out Sikorsky's numbers for 2003 as well.

The helicopter maker's revenues rose 13.6 percent in 2004, to $2.5 billion from $2.2 billion in 2003. The company's operating profit rose 4.4 percent, to $213 million in 2004 from $204 million the previous year. That equated to an operating margin of 8.5 percent for last year and 9.3 percent for 2003. That level of operating margin should make Sikorsky, and by extension UTC, attractive to investors, according to the investment firm JP Morgan, which says the helicopter maker "has one of the most robust outlooks for growth and increased profitability in the near term despite the VXX loss." It says Sikorsky's operating margin is the lowest of the five big-helicopter manufacturers, the others being AgustaWestland, Bell Helicopter Textron, Boeing and Eurocopter and has plenty of room for improvement.

JP Morgan's rationale is that Sikorsky will be reaping the benefit in the coming years of fielding developed aircraft and spending less of its funds on research and development programs like the canceled Comanche program and the S-92. As it ramps up production of the Black Hawk and Naval Hawk under multiyear contracts with the Pentagon, the company should be able to boost its operating margin.

"The biggest opportunity for Sikorsky in the near term will be driving margin expansion," JP Morgan analysts Joseph Nadol and Steve Tusa, Jr. wrote in a recent report. They forecast Sikorsky should be able to hit an operating margin of at least 9 percent in 2005 and as much as 11 percent in the near future.

One element of the business that will help that margin, they say, is aftermarket support. JP Morgan estimates Sikorsky generated about $1.2 billion in aftermarket revenues last year and says it is likely to double that business by 2008. Aftermarket services have higher operating margins than manufacturing, and Sikorsky's revenues from those services should continue to climb as the U.S. military's need for repair and refurbishment of helicopters grows. Combat operations in Iraq and Afghanistan are requiring that the aircraft fly twice as much (or more) than they were projected to do before the war. That wear and tear, combined with combat damage, should keep the military demand for aftermarket services strong into late 2006 or 2007. Even if the U.S. were to begin withdrawing combat forces from Southwest Asia tomorrow, JP Morgan estimates, there would be 12-18 months of repair and refurbishment work to be done on the returning helicopters.

Sikorsky would fare even better if the next round of U.S. military facility closures, which is just getting under way, includes military-run depots supporting the aircraft it builds. A newly appointed Base Realignment and Closure commission is to make recommendations to President Bush in September.

Sikorsky's aircraft product lines appear to be in good shape.

The biggest program on the company's plate is the UH-60M Black Hawk upgrade for the U.S. Army. The Army and National Guard have a fleet of 1,500 Black Hawks. More than 1,100 others are operated by 25 nations around the world. Singapore recently placed an order for six S-70s, the designation for the aircraft sold to customers outside the U.S. government. The UH-60 has a base price of about $11 million.

In service for more than 20 years, the Black Hawk was to undergo a $15 billion remanufacture process for the U.S. Army to upgrade hundreds of UH-60As and Ls to the -60M configuration starting next year. Sikorsky already has converted two older Black Hawks to that configuration and manufactured one new-build -60M. The Army's objective was to have a fleet of at least 1,217 Black Hawks in the UH-60M configuration, made up of a mix of remanufactured UH-60As and Ls and newly built UH-60Ms.

But Sikorsky has been overhauling its manufacturing processes over the last year or so to make them more efficient. Those changes helped Sikorsky make the argument to Army officials that it could provide new -60Ms for close to the price the service planned to pay for remanufactured aircraft.

In mid-2004, Army and Sikorsky officials calculated that new -60Ms would cost about 1.3 times that of remanufactured aircraft. Through adoption of "lean manufacturing" techniques and processes and more stringent management of suppliers on the program, "we reduced that to 1.1," said Doug Shidler, Sikorsky's vice president for Black Hawk programs. "That made it, we believe, a fairly easy decision" for the Army to shift entirely to new-build aircraft for the -60M program.

The Army agreed and indicated that Sikorsky should start planning to build more than 1,200 new Black Hawks on its Stratford production lines. The Defense Acquisition Board in early March agreed and cleared the UH-60M program for low-rate initial production of 30 aircraft. (In addition to that order, the president's latest budget proposal calls for funding acquisition for 41 Black Hawks--24 -60Ls and 17 -60Ms.) The low-rate production is to begin in mid-2006, supporting operational testing that is planned to start in September of that year.

As part of its pitch for authorization of new builds, Shidler said, Sikorsky offered to buy back from the Army all of its UH-60As.

Under the current plans, Shidler said, Sikorsky would continue to remanufacture -60Ls while increasing production of -60Ms, shifting to an all-new -60M line in 2007.

The "Mike" upgrades to the UH-60 include:

  • Use of a version of the wide-chord main rotor blades developed for the S-92. They are 18 in. shorter than those on the S-92. Blades for both aircraft are made on the same component line. The new blades provide 400-500 lb. additional lift in a hover over those used on earlier model Black Hawks;
  • Upgraded GE T700-GE-701D engines. Rated at 2,000 shp., the engine has improved hot-section components that provide twice the hot-section durability and 5 percent more power than the T700-GE-701Cs on existing Black Hawks. The engine won Army certification in November 2004.
  • A new, monolithic cabin, which is now being manufactured by Vought Aircraft Industries. The monolithic structure reduces the parts count for the Black Hawk by thousands, Shidler said. The first phase of Vought's contract with Sikorsky calls for production of 350 shipsets through 2009;
  • A foldable, composite stabilator that is 20 lb. lighter than the previous component, which Shidler said helps alleviate aft c.g. concerns in operation of the aircraft;
  • Active vibration control;
  • Increased infrared signature suppression features;
  • Crashworthy, ballistically tolerant external fuel tanks, replacing the internal bladders used to extend the range of older Black Hawks;
  • A gearbox with provisions for a rotor brake (similar to the -60L);
  • A glass cockpit using Rockwell Collins' Common Avionics Architecture System;
  • A four-axis, coupled flight control system.

The company also is well-positioned to help the Marine Corps meet its heavy-lift rotorcraft needs in the coming decades. Sikorsky's CH-53Es and MH-53E have been workhorses for U.S. forces operating in Afghanistan, Iraq and the Horn of Africa. But the aircraft were long orphans of the military budget process as the Marine Corps focused on other aviation priorities. The lack of funding for upgrades and improvements is taking its toll now; the CH-53E is the most costly rotorcraft the U.S. military operates and requires 43 or more maintenance labor hours for every flight hour. Still, Gen. Michael Hough, deputy Marine commandant for aviation, has said the Marines can not go to war without the CH-53E. Given that reasoning, an answer must be found in the next-generation heavy-lift rotorcraft, informally known as the CH-53X.

"We have indications from the Marine Corps that this is now the No. 1 rotorcraft program, very possibly the No. 1 aviation program, in the Marine Corps," Pino said.

Sikorsky has been working with the Marines under a $74 million contract, the first phase of which involved defining trade-offs of design elements, options for mitigating risks and strategies for selecting contractors and subcontractors for the Marines next heavy-lift helicopter. A late 2003 analysis of alternatives identified a new-build aircraft as the best option for meeting the Marines' requirements, which are stringent.

They want an aircraft about the same size as a CH-53E, because it must fit on the decks of existing U.S. Navy ships. That aircraft must have more than twice the -53E's payload and range and half its operating costs. The target is to carry 27,000 lb. over 110 nm., a range that limits the -53E to a 12,000-lb. load.

It also must be built for about the same price as the -53E's roughly $32-million price tag.

The Marine Corps want 154 of the aircraft, and it needs them relatively soon. The service lives of the existing CH-53s will begin to run out in 2011-12.

"This is a very aggressive program, there's no doubt about that," said David Haines, Sikorsky's H-53 program manager. "They desperately need this aircraft."

Sikorsky is negotiating the terms of the second phase of the contract, which company officials hope will lead to a November selection of Sikorsky as the sole source for the CH-53X program. The program's timeline also calls for selection of a 6,000-shp.-category powerplant for the three-engine helicopter. Honeywell, General Electric, Pratt & Whitney and Rolls-Royce are all competing for that work.

In addition to the Marines' needs, Haines said, there likely will be an international need for 100-150 new heavy-lift helicopters.

While specific details of the CH-53X have yet to be set, Haines said program officials are looking at a helicopter with a main rotor with seven composite blades and an elastomeric (or "dry") rotor head, a new airframe that likely will make extensive use of composites, a glass cockpit, a fly-by-wire flight control system, a new tail rotor, a new drive train, self-defense weapons and aircraft survivability equipment.

The extra fuel that the CH-53E carries in drop tanks would be moved to tanks in the sponsons of the -53X.

Also, the aft of the aircraft would be wider than the -53E to meet a requirement to carry certain U.S. Air Force cargo pallets.

"The key performance parameters focus on interoperability and range/payload," Haines said.

Sikorsky's Naval Hawk program has delivered 80 MH-60S upgrades to the U.S. Navy and is under contract to supply 270. The company is in low-rate initial production on the MH-60R, of which 254 are to be delivered. The Sierra and Romeo upgrades, which originally were remanufacturing programs that have been upgraded to new-build contracts, are intended to cut the number of rotorcraft types the Navy operates from eight to two

On the S-92 program, Sikorsky has shut down its assembly line in Bridgeport, Conn. and relocated it to Stratford. The S-92 had shared the facility with Comanche production. That program's cancellation left it the only production activity in Bridgeport, and the VXX loss opened up floor space in Stratford. Program officials now are racing to get the Stratford line configured and running at a pace to begin easing the backlog of S-92 deliveries. As part of that effort, Sikorsky is having S-92s completed at both Keystone Helicopter in West Chester, Pa. and Heritage Aviation in Grand Prairie, Texas.

The line will be busy. Sikorsky has about 60 orders for versions of the $15 million S-92, including the 28-aircraft order for Canada's Maritime Helicopter Program.

In addition, Sikorsky plans to offer the S-92 to meet the U.S. Air Force's requirements for a new combat search and rescue helicopter, dubbed the Personnel Recovery Vehicle. The Air Force was expected to put out a request for proposals this month for the program, which would cover 132 medium-lift helicopters to replace its HH- 60G Pave Hawks and possibly another 64 aircraft for VIP and USAF transportation. The Pentagon has issued four $1.25 million contracts for continued work on its proposals to Sikorsky, Bell/Boeing (which are to offer the CV-22), Team US101, and Northrop Grumman (which is partnering with Eurocopter on an NH90 entry). A contract for the $11-billion program could be let as early as the end of this year.

Sikorsky's civil stalwart, the S-76, is getting an overhaul of its assembly line and its models. Mick Maurer, vice president of commercial programs, said the time required for S-76 final assembly has been cut to 76 hr., about half of what it was three years ago. The company is working on other improvements to permit it to make 30 S-76s a year.

The extra capacity will be needed. The S-76 is sold out through 2006 and the company is developing two new versions of the popular civil and commercial helicopter.

Several upgrades are available now on the new S-76C++. These include: the Turbomeca Arriel 2S2 engine, which the company says will provide a 5-6 percent increase in engine ratings; a new VIP interior with an improved soundproofing system; the Honeywell VXP Health and Usage Monitoring System, and Sikorsky's proprietary Quiet Gearbox technology to reduce interior noise.

The S-76D, which should be available in 2008, will build on those upgrades and include additional improvements, such as a new composite main rotor blade, a new quiet tail rotor, icing protection, a new cockpit with highly integrated avionics, and the new Pratt & Whitney Canada PW210 Engine, which is being tailored to the D and designed to improve Category A hot-takeoff capability by about 1,000 lb. with no range penalty.

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